General Insurance Distribution Channels

Direct Response System

Direct response system is the most cost effective for the consumer because the marketing of products is cheaper than using an agency network and the competition is greater. Direct response marketing solicits business through advertising through traditional media, by telemarketing, or Internet. The consumers can compare policy benefits and prices easier with the Internet, since there are many sites devoted to comparing insurance prices. For the insurer, direct response model allows the insurer to sell to a much larger population than would be feasible using agents, and for much less money. Direct response system of selling is more limited when selling general insurance as the complexity of most policies. The only general insurance that is sold by direct response are personal lines, including homeowner's and auto insurance (“Insurance Marketing System”, n.d.).

Internet

Purchasing insurance online is convenient, faster and often cost lesser. With click of a mouse you can buy any policy at anywhere and anytime. The distribution efficiency also leads to cost efficiency. Since the customer buys directly from the insurer, the commissions can be saved and therefore lower premiums is charged. Insurance product quotations and policy wording are made available online. Payment of premiums is instant, made easy through online payment via credit cards.

According to Zaharudin Daud (2015), Etiqa as a true multi-channel distributor, is also one of the pioneers for direct sales through the internet, with its online offerings spanning both Motortakaful.com and Maybank2U.

Call Center (Telemarketing)

Insurers also periodically send out promotional product brochures (direct mailers) to existing policyholders without servicing agents. Telemarketers from call centres owned or appointed by insurers also phone customers to advise and market personal lines, as well as help to file claims. Insurers also embark on cross-selling strategies to serve the needs of their customers (General Insurance Association, n.d.). Etiqa Oneline is the call centre for Etiqa Insurance Berhad and Etiqa Takaful Berhad. With this call centre, customers can access to information regarding products and services like making changes to their policies. Besides that, Pacific & Orient Insurance provides a quick and easy way to purchase insurance, which is called teleinsurance. Teleinsurance, the first insurance Call Centre to provide a new insurance quote or online renewal service, with policy delivery within 24 hours (Pacific & Orient Insurance Co. Berhad, n.d.).

Bancassurance

Bancassurance is the partnership between a bank and an insurance company, whereby the insurance company uses the bank sales channel in order to sell insurance products. Bank staff members, rather than insurance agents, become the point of sales or point of contact for customers. Bank staff members are advised and supported by the insurance companies through product information, marketing campaigns and sales training. They are also required to pass the relevant licensing examinations before they can sell insurance or provide insurance-related advice (General Insurance Association, n.d.).
             In Malaysia, there are many partnerships between insurance companies and banks to sell from simple low premium insurance solutions to sophisticated financial planning products catering to the high income group customers. Almost all of the local banks in Malaysia have partnership agreements with insurance companies. For example, Alliance Bank Malaysia Berhad (Alliance Bank) has bancassurance partnership with Prudential Assurance Malaysia Berhad (PAMB). According to Jaganathan (2014), at the current penetration level of 5% of the banking population, there remains significant room for growth. Bank has envisaged a bancassurance penetration target of 10% as part of the move towards diversification of insurance distribution channels in Malaysia. 

Bancassurance benefits consumers in the form of convenient access to a wide range of integrated financial services from a single provider, and more competitively priced insurance products as a result of insurers passing on cost savings arising from lower distribution costs. The more effective use of technology and higher investments in the development of human resource competencies by banks and insurers to support the increased customer focus that is central to an effective bancassurance strategy, is also favourable to consumers. Over the time, this is expected to lead to significantly improved services to consumers and thereby, a higher overall level of consumer satisfaction (“Development of Bancassurance in Malaysia”, n.d.).

Bancassurance Opportunities
For Banks	For Insurers
• Greater income stability	• Expand customer base
• Expand product offerings	• Lower distribution costs
• More productive use of customer database and branch network	• Enhance ability to segmentise markets to support more effective product design and marketing efforts

 (Source: Bank Negara Malaysia. Retrieved from http://www.bnm.gov.my/files/publication/dgi/en/2004/06.box1.pdf)

Table 4.1: Bancassurance Opportunities for Banks and Insurers

            Table 4.1 illustrates the bancassurance opportunities for banks and insurers. In Malaysia, there are three predominant bancassurance models, including referral arrangements, distribution agreements and integrated services. Referral arrangement is the one which insurer is placed on the panel of a bank for the provision of certain insurance covers to the bank’s customers. Under distribution agreements, banks act as intermediaries for insurance companies and promote the insurance products of its bancassurance partner to its customers. For integrated services, new subsidiary will be created by insurance company and bank to deliver banking and insurance products to customers in a seamless manner.

Development of the Distribution System and Channels

 

(Source: Ernst and Young, 2011)

Figure 4.2: Distribution Evolution in Non-life Insurance Markets in Emerging Asia and Other Sample Market

Figure above is extracted from the report “Motor insurance – Asia’s growth engine” which is published by Ernst and Young in 2011. It shows the subjective view from Ernst and Young of the maturity of the distribution in motor insurance in Asia compared to UK and Australia.

            The figure above shows the graph of cost of distribution against maturity in Asia compared to UK and Australia. It clearly shows that mature markets tend to focus on direct methods in this technological era. However in 2011, Malaysia which still depends heavily on agency force and brokers has high cost of distribution is categorized as not mature markets. Korea which has mature economics, with an internet penetration of over 80%, e-business in Korea is an important distribution method. The foreign insurers in Korea are targeting new distribution channels such as internet to create the presence. (Ernest and Young, 2011)

Over these few years, the development of Internet has encouraging the increase of amount of internet users. According to Vincent (2014), the Gen Y makes up 40% of the Malaysian population and is growing at a rapid rate of 2.6% per annum. Within the next few years, this group will be the potential buyers of insurance. This generation grew up with the digital age, insurers are therefore compelled to find creative ways and innovative channels to optimize distribution of their insurance products.

	2012	2013	2014	2015	2016
Internet Users (’000)	17,755.3	18,508.0	18,896.5	19,652.6	20,201.3

(Source: Euromonitor International. Retrieved from http://www.euromonitor.com/malaysia/country-factfile)

Table 4.2: Internet Users in Malaysia from the year 2012 to 2016

            Table 4.2 shows the amount of internet users in Malaysia from the year 2012 to 2016. Over the years, the revolution in mobile devices, Internet usage and social networking are changing the way consumers connect, interact and transact businesses. This results of the emergence of new direct channels using internet and social media. As of end 2013, the penetration rate of mobile phones in Malaysia was 144%. The penetration rate for Internet Broadband was reported at 67% with a total of some 2.2 million private households. The mobile commercial is forecast to grow more than seven times to reach RM3.43 billion in 2015 which translates to 60% of the online shopping market (Vincent, 2014).

Besides that, Bancassurance business has grown significantly in Malaysia. When bancassurance first started in 1993, it gained a mere market share of 2% of new business premiums. However, over the last two decades, the growth of bancassurance has been phenomenal, capturing about 60% market share for single premium business. In terms of its share of annual premium business, it has grown steadily in strength to 12% of new business premiums. The tied agency channel has registered a 23% market share for single premium business, and 86% of new business for annual premium policies (Vincent, 2014).

Figure 4.3: Market Share Based on Weighted New Premiums in 2013

As of 2013, in terms of market share based on weighted new premiums, the agency channel was still leading with 80%, while the Bancassurance channel was a distant second with 16%. Direct channel contributed 2% of market share, with the remaining 2% from brokers, financial advisers and other channels (Vincent, 2014).